UMG Faces An Uphill Battle Against Veoh On Appeal

Universal Music Group argued one of the most closely watched copyright cases in digital media on Friday-and the panel of appeals judges who heard the case sounded skeptical of the record company’s arguments. The record label’s lawsuit against Veoh could influence how Viacom’s case against YouTube (NSDQ: GOOG) turns out, or tee up the issue for Supreme Court review.

The lawsuit against Veoh, a video-sharing site that competed with YouTube, was filed back in 2007. In it, UMG said that Veoh didn’t do enough to stop users from sharing videos that contained copyrighted music. Veoh responded in court, saying that it did everything required to be protected by the “safe harbor” from copyright lawsuits granted by Congress in the Digital Millennium Copyright Act.

An interesting aside to this case: it’s continuing despite the fact that Veoh essentially went out of business in 2009. Veoh founder Dmitry Shapiro cited the costs of this litigation as one of the reasons the company went under. In any case, someone cares about this case enough to be paying Veoh’s legal bills-even though the investment group that bought Veoh’s assets, Qlipso, has made it clear they aren’t in charge of this litigation.

In 2009, the Los Angeles federal judge overseeing the case ruled in Veoh’s favor. Now, UMG is arguing its case at the U.S. Court of Appeals for the 9th Circuit, which covers most of the western U.S.

The argument held Friday represents the first time any U.S. appeals court has considered the issue of what a company has to do to get the protections of the “safe harbor.” The Viacom (NYSE: VIA) v. YouTube case, which will be argued sometime later this year in the New York-based 2nd Circuit, will be the second.

During the argument, UMG told the three-judge panel that the lower court ruling in Veoh’s favor has “completely upended the balance” between content owners and internet services. If the judgement is allowed to stand, it will put services like iTunes, Netflix (NSDQ: NFLX), and Hulu at a disadvantage, argued UMG’s lawyer, Steve Marenberg of Irell & Manella.

UMG is actually arguing that the “safe harbor” in U.S. law only applies to backbone internet businesses-like Verizon or Comcast (NSDQ: CMCSA). Marenberg seems to be arguing that the law actually doesn’t protect websites at all. This argument is harder to believe today than it might have been back in 2002 or 2003, since several giant internet companies have grown up at least thinking they’re protected by the safe harbor in copyright law. So what kind of services are protected? Marenberg suggests that in addition to broadband providers, it would apply to companies that provide “server space for user’s website,” or a “chat room or other forum in which material may be posted at direction of the user.”

That’s a pretty radical stance, and seems to go further than what Viacom has alleged against YouTube. Viacom has increasingly focused its arguments around the use of software filters, and when and how YouTube used such filters.

Both Judge Marsha Berzon and Judge Raymond Fisher seemed skeptical of UMG’s stance. If the judges accept UMG’s position on the safe harbor, then “you have kind of blown the whole thing up,” said Judge Berzon. “You’re essentially saying that if you’re making money then the fact that you only take [content] off when someone follows the right strictures-that isn’t good enough.” The third judge on the panel, Judge Harry Pregerson, didn’t say much, so it’s hard to read his feeling on the case.

Veoh was represented by Michael Elkin of Winston & Strawn, who opened his argument by responding to Marenberg’s economic points. “The purpose of the DMCA was to facilitiate the robust development of e-commerce, education, and information in the digital age,” said Elkin. “I would also submit that but for the safe harbor provisions, we never would have seen investments in Amazon (NSDQ: AMZN), Facebook, eBay (NSDQ: EBAY), and Google.”

UMG is simply “unhappy with the DMCA,” said Elkin, but the lower court’s decision favoring Veoh was well-grounded in law. He also noted a couple times that it wasn’t until several months after UMG sued Veoh that it finally provided any takedown notices so that Veoh could remove the content UMG is complaining about. Once the notices were provided, the content came down within a couple days.

»Audio of the argument in UMG v. Veoh can be accessed from the 9th Circuit’s website.

» More analysis of the arguments in this case available at Michael Barclay’s IP Duck blog. Barclay is an attorney who volunteers with the Electronic Frontier Foundation, which has supported Veoh in this litigation.